Source: Fortune —
The housing market downturn continues to pick up steam.
This week, we learned that slumped home construction subtracted 1.37 percentage points from U.S. GDP in the third quarter. That’s the biggest housing contraction since 2007. Meanwhile, mortgage purchase applications are down 41.8% on a year-over-year basis. Total mortgage purchase applications are now lower than any point hit during the Great Recession.
This downshift in housing activity has sharpened in recent weeks as the U.S. housing market adjusts to another mortgage rate surge. As of Friday, the average 30-year fixed mortgage rate sat at 7.08%. Prior to October, the U.S. had not seen a 7-handle mortgage rate since 2002.
The combination of an intensified housing market downturn coupled with 7% mortgage rates is also translating into more downward revisions in home price outlooks. Look no further than Moody’s Analytics, which now predicts U.S. home prices will fall 10% between peak-to-trough.
“I raised my mortgage rate forecast and thus lowered my outlook for home sales, homebuilding, and home prices. I was expecting mortgage rates to average 5.5% through next year’s spring selling season. Now, I think it is much more likely to be closer to 6.5%. That hurts demand and homebuilding and home prices,” Mark Zandi, chief economist at Moody’s Analytics, tells Fortune.
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